Debate on income inequality fails to account for income mobility; four out of five low-income Canadians move up the income ladder over 10 years

VANCOUVER, BC—Over a span of 10 years, four out of five of Canada’s lowest income earners moved up the income ladder, according to a new study that measures income mobility and highlights how it is often ignored in the debate about income inequality in Canadian society.

In fact, one in five Canadians in the lowest income group eventually moved up to the highest income group over a 19-year period. The findings are contained in Measuring Income Mobility in Canada, published today by the Fraser Institute, Canada’s leading independent public policy think-tank.

“Canada is not a caste society where people are consigned to a single income group for their entire lives. The current debate on income inequality is based on the idea that today’s low-income Canadians are the same people five, 10, or even 20 years from now; they’re not,” said Charles Lammam, Fraser Institute associate director and the report’s co-author.

“People move up and down the income ladder over the course of their lives. Unfortunately, that fact is often ignored in debates about income inequality. Instead, the income inequality debate typically compares high and low-income groups at specific points in time, producing a distorted picture of the opportunities Canadians have to advance.”

Using specially requested data from Statistics Canada, Measuring Income Mobility in Canada divides Canadians into five groups based on their initial income (what they earn through wages and salaries before taxes), then tracks how their income changed over time frames of five, 10, and 19 years. If someone started in the lowest income group in one year (the bottom 20 per cent of income earners), but moved to a higher group after several years, he or she experienced upward income mobility.

The study found considerable upward mobility over all time periods but individuals initially in the lowest income group experienced the most upward mobility over all time periods. Over the 10-year period between 1990 and 2000, 83 per cent of those who started in the bottom 20 per cent of income earners moved to a higher income category. Over the 19-year period measured (1990 to 2009), 87 per cent moved up.

“Being in the lowest income group was a temporary experience for the overwhelming majority of Canadians covered in our study,” Lammam said.

Looking specifically at the income mobility of individuals in the lowest income group over the 19-year period, the study found that 21 per cent of those who began in the bottom group in 1990 ended up in the highest income group by 2009.

“One of every five Canadians who started in the bottom 20 per cent eventually made it to the top 20 per cent and approximately two of every five ended up in the two highest income groups,” Lammam said.

In addition to finding that low-income Canadians move up the income ladder, the study found that some individuals in higher income groups experience downward mobility as time progresses. For instance, 36 per cent of individuals in the top income category in 1990 had moved to a lower income category by 2009.

“Most Canadians start off with a relatively low income because they are young, new to the workforce, and lack work and life experience. Once they acquire education and job-related skills, their income typically increases until it peaks in middle age and then drops again once they pass their peak earning years and prepare for retirement,” Lammam said.

“Most people do not remain in the same income group throughout their lives, so focusing on comparisons of high and low-income groups at specific points in time results in an incomplete analysis of income inequality.”